IDEAS home Printed from https://ideas.repec.org/a/inm/ortrsc/v51y2017i4p1086-1101.html
   My bibliography  Save this article

Service Refusals in Supply Chains: Drivers and Deterrents of Freight Rejection

Author

Listed:
  • Alex Scott

    (D’Amore–McKim School of Business, Northeastern University, Boston, Massachusetts 02115)

  • Chris Parker

    (Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16801)

  • Christopher W. Craighead

    (Haslam College of Business, University of Tennessee, Knoxville, Tennessee 37996)

Abstract

Contracts in the for-hire trucking industry are unusual in that, although they establish prices for different services, there is typically no legally binding obligation or penalty for either party to offer or accept a load. When a load is rejected by all contract carriers, shippers must turn to the spot market, which can significantly increase supply chain costs. Because these transactions occur between private parties, data on load acceptances/rejections and contract/spot prices have not been available to academic researchers, leaving the freight rejection problem largely unexplored. We are able to examine this problem using a detailed transactional data set of a large national shipper. We estimate that spot prices for truckload services average about 62% higher than contract rates. We find key operational and economic factors to be drivers of freight rejection and the shipper-carrier relationship to be a deterrent to freight rejection. We also find that primary and secondary carriers respond differently to these operational and economic factors. We discuss how these insights could be used by a shipper to get better performance and lower cost from their carrier base.

Suggested Citation

  • Alex Scott & Chris Parker & Christopher W. Craighead, 2017. "Service Refusals in Supply Chains: Drivers and Deterrents of Freight Rejection," Transportation Science, INFORMS, vol. 51(4), pages 1086-1101, November.
    • Handle: RePEc:inm:ortrsc:v:51:y:2017:i:4:p:1086-1101
    DOI: 10.1287/trsc.2016.0677
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/trsc.2016.0677
    Download Restriction: no
    File URL: https://libkey.io/10.1287/trsc.2016.0677?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts and the Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 39-84.
    2. Milgrom, Paul, 1989. "Auctions and Bidding: A Primer," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 3-22, Summer.
    3. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    4. Crocker, Keith J & Moran, John R, 2003. "Contracting with Limited Commitment: Evidence from Employment-Based Health Insurance Contracts," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 694-718, Winter.
    5. Warren M. Hirsch & George B. Dantzig, 1968. "The fixed charge problem," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 15(3), pages 413-424, September.
    6. Theodore E. Keeler., 1989. "Deregulation and Scale Economies in the U. S. Trucking Industry: An Econometric Extension of the Survivor Principle," Economics Working Papers 89-100, University of California at Berkeley.
    7. Katz, Ethan, 2001. "Bias in Conditional and Unconditional Fixed Effects Logit Estimation," Political Analysis, Cambridge University Press, vol. 9(4), pages 379-384, January.
    8. Scott, Alex, 2015. "The value of information sharing for truckload shippers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 81(C), pages 203-214.
    9. Berbeglia, Gerardo & Cordeau, Jean-François & Laporte, Gilbert, 2010. "Dynamic pickup and delivery problems," European Journal of Operational Research, Elsevier, vol. 202(1), pages 8-15, April.
    10. E. William Moore & Janice M. Warmke & Lonny R. Gorban, 1991. "The Indispensable Role of Management Science in Centralizing Freight Operations at Reynolds Metals Company," Interfaces, INFORMS, vol. 21(1), pages 107-129, February.
    11. Roberto Roberti & Enrico Bartolini & Aristide Mingozzi, 2015. "The Fixed Charge Transportation Problem: An Exact Algorithm Based on a New Integer Programming Formulation," Management Science, INFORMS, vol. 61(6), pages 1275-1291, June.
    12. Powell, Warren B., 1987. "An operational planning model for the dynamic vehicle allocation problem with uncertain demands," Transportation Research Part B: Methodological, Elsevier, vol. 21(3), pages 217-232, June.
    13. Keeler, Theodore E, 1989. "Deregulation and Scale Economies in the U.S. Trucking Industry: An Econometric Extension of the Survivor Principle," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages 229-253, October.
    14. Sako, Mari & Helper, Susan, 1998. "Determinants of trust in supplier relations: Evidence from the automotive industry in Japan and the United States," Journal of Economic Behavior & Organization, Elsevier, vol. 34(3), pages 387-417, March.
    15. Tsai, Mei-Ting & Saphores, Jean-Daniel & Regan, Amelia, 2011. "Valuation of freight transportation contracts under uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 920-932.
    16. George P. Baker & Thomas N. Hubbard, 2003. "Make Versus Buy in Trucking: Asset Ownership, Job Design, and Information," American Economic Review, American Economic Association, vol. 93(3), pages 551-572, June.
    17. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    18. Jeffrey M. Wooldridge, 2003. "Cluster-Sample Methods in Applied Econometrics," American Economic Review, American Economic Association, vol. 93(2), pages 133-138, May.
    19. Warren B. Powell, 1996. "A Stochastic Formulation of the Dynamic Assignment Problem, with an Application to Truckload Motor Carriers," Transportation Science, INFORMS, vol. 30(3), pages 195-219, August.
    20. Miguel Andres Figliozzi & Hani S. Mahmassani & Patrick Jaillet, 2007. "Pricing in Dynamic Vehicle Routing Problems," Transportation Science, INFORMS, vol. 41(3), pages 302-318, August.
    21. William Greene, 2004. "Fixed Effects and Bias Due to the Incidental Parameters Problem in the Tobit Model," Econometric Reviews, Taylor & Francis Journals, vol. 23(2), pages 125-147.
    22. Jian Yang & Patrick Jaillet & Hani Mahmassani, 2004. "Real-Time Multivehicle Truckload Pickup and Delivery Problems," Transportation Science, INFORMS, vol. 38(2), pages 135-148, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Acocella, Angela & Caplice, Chris & Sheffi, Yossi, 2020. "Elephants or goldfish?: An empirical analysis of carrier reciprocity in dynamic freight markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 142(C).
    2. Burks, Stephen V. & Kildegaard, Arne & Miller, Jason W. & Monaco, Kristen, 2023. "When Is High Turnover Cheaper? A Simple Model of Cost Tradeoffs in a Long‐Distance Truckload Motor Carrier, with Empirical Evidence and Policy Implications," IZA Discussion Papers 16477, Institute of Labor Economics (IZA).
    3. Alex Scott & Christopher W. Craighead & Chris Parker, 2020. "Now You See It, Now You Don't: Explicit Contract Benefits In Extralegal Exchanges," Production and Operations Management, Production and Operations Management Society, vol. 29(6), pages 1467-1486, June.
    4. Xinyi Lyu & Tiaojun Xiao & Jingquan Li, 2024. "Evolution of direct network effects: A perspective of market thickness of an online freight platform," Electronic Markets, Springer;IIM University of St. Gallen, vol. 34(1), pages 1-16, December.
    5. Miller, Jason W. & Phares, Jonathan & Burks, Stephen V., 2023. "Job Creation and Job Destruction Dynamics in the U.S. Truck Transportation Industry, 1995-2019," IZA Discussion Papers 16184, Institute of Labor Economics (IZA).
    6. Zolfagharinia, Hossein & Haughton, Michael A., 2017. "Operational flexibility in the truckload trucking industry," Transportation Research Part B: Methodological, Elsevier, vol. 104(C), pages 437-460.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Scott, Alex, 2015. "The value of information sharing for truckload shippers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 81(C), pages 203-214.
    2. Zolfagharinia, Hossein & Haughton, Michael, 2018. "The importance of considering non-linear layover and delay costs for local truckers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 109(C), pages 331-355.
    3. Zolfagharinia, Hossein & Haughton, Michael A., 2017. "Operational flexibility in the truckload trucking industry," Transportation Research Part B: Methodological, Elsevier, vol. 104(C), pages 437-460.
    4. Acocella, Angela & Caplice, Chris & Sheffi, Yossi, 2020. "Elephants or goldfish?: An empirical analysis of carrier reciprocity in dynamic freight markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 142(C).
    5. Martin W.P Savelsbergh & Marlin W. Ulmer, 2022. "Challenges and opportunities in crowdsourced delivery planning and operations," 4OR, Springer, vol. 20(1), pages 1-21, March.
    6. Zolfagharinia, Hossein & Haughton, Michael, 2014. "The benefit of advance load information for truckload carriers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 34-54.
    7. Macchiavello, Rocco & Miquel-Florensa, Josepa, 2017. "Vertical Integration and Relational Contracts: Evidence from the Costa Rica Coffee Chain," CEPR Discussion Papers 11874, C.E.P.R. Discussion Papers.
    8. Agatz, Niels & Erera, Alan & Savelsbergh, Martin & Wang, Xing, 2012. "Optimization for dynamic ride-sharing: A review," European Journal of Operational Research, Elsevier, vol. 223(2), pages 295-303.
    9. George Chondrakis & Mari Sako, 2020. "When suppliers shift my boundaries: Supplier employee mobility and its impact on buyer firms' sourcing strategy," Strategic Management Journal, Wiley Blackwell, vol. 41(9), pages 1682-1711, September.
    10. Zolfagharinia, Hossein & Haughton, Michael, 2016. "Effective truckload dispatch decision methods with incomplete advance load information," European Journal of Operational Research, Elsevier, vol. 252(1), pages 103-121.
    11. Mari Sako & George Chondrakis & Paul M. Vaaler, 2016. "How Do Plural-Sourcing Firms Make and Buy? The Impact of Supplier Portfolio Design," Organization Science, INFORMS, vol. 27(5), pages 1161-1182, October.
    12. Miguel Andres Figliozzi & Hani S. Mahmassani & Patrick Jaillet, 2007. "Pricing in Dynamic Vehicle Routing Problems," Transportation Science, INFORMS, vol. 41(3), pages 302-318, August.
    13. Alex Scott & Christopher W. Craighead & Chris Parker, 2020. "Now You See It, Now You Don't: Explicit Contract Benefits In Extralegal Exchanges," Production and Operations Management, Production and Operations Management Society, vol. 29(6), pages 1467-1486, June.
    14. Sant’Anna, Pedro H.C. & Zhao, Jun, 2020. "Doubly robust difference-in-differences estimators," Journal of Econometrics, Elsevier, vol. 219(1), pages 101-122.
    15. Marian W. Moszoro, 2018. "Tools and approaches in public contracting research," Chapters, in: Claude Ménard & Mary M. Shirley (ed.), A Research Agenda for New Institutional Economics, chapter 10, pages 88-96, Edward Elgar Publishing.
    16. Marie Bjørneby & Annette Alstadsæter & Kjetil Telle, 2018. "Collusive tax evasion by employers and employees. Evidence from a randomized fi eld experiment in Norway," Discussion Papers 891, Statistics Norway, Research Department.
    17. Christopher Hansman & Jonas Hjort & Gianmarco León-Ciliotta & Matthieu Teachout, 2020. "Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3570-3625.
    18. Bart S. Vanneste & Onesun Steve Yoo, 2020. "Performance of trust-based governance," Journal of Organization Design, Springer;Organizational Design Community, vol. 9(1), pages 1-28, December.
    19. Defever, Fabrice & Fischer, Christian & Suedekum, Jens, 2016. "Relational contracts and supplier turnover in the global economy," Journal of International Economics, Elsevier, vol. 103(C), pages 147-165.
    20. Paul H. Jensen & Robin E. Stonecash, 2004. "The Efficiency of Public Sector Outsourcing Contracts: A Literature Review," Melbourne Institute Working Paper Series wp2004n29, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ortrsc:v:51:y:2017:i:4:p:1086-1101. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.